Perkins Corporation manufactures two products; data are shown below: If Perkins' monthly fixed costs average $425,000, what is its break-even point expressed in sales dollars?

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find out the total contribution margin that will cover the fixed costs. 
Total contribution margin = Sales - Variable Costs 
For Product A: contribution margin per unit = $40 - $28 = $12 
For Product B: contribution margin per unit = $70 - $40 - $12 = $18 
Weighted average contribution margin per unit = (5,000 units x $12 + 4,000 units x $18) / 9,000 = $15 
Break-even point (in units) = Fixed Costs / Weighted average contribution margin per unit 
Break-even point (in units) = $425,000 / $15 = 28,333.33 
Break-even point (in sales dollars) = Break-even point (in units) x selling price 
Break-even point (in sales dollars) = 28,333.33 x $50 = $1,416,666.67  
Therefore, the best choice is C, which is $1,250,000.

Perkins Corporation Manufactures Two Products; Data Are Shown Below: If